UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: +44
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 7, 2024, there were
RENALYTIX PLC
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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PART I |
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Item 1. |
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Consolidated Balance Sheets as of September 30, 2024 (unaudited) and June 30, 2024 |
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Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2024 and 2023 (unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the three months ended September 30, 2024 (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “goal,” “target,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements, projections and opinions contained in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include statements about:
i
You should refer to the section titled "Part I, Item 1A. Risk Factors" contained in the Company's Annual Report on Form 10-K for the year ended June 30, 2024 (the “Annual Report on Form 10-K”) and the sections of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors”’ for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, applicable regulations or the rules of The OTCQB Market.
You should read this Quarterly Report, the documents that we reference in this Quarterly Report and the documents we have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
ii
RENALYTIX PLC
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share and per share data) |
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September 30, 2024 |
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June 30, 2024 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Investment in VericiDx |
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Other assets, net |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accounts payable – related party |
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Accrued expenses and other current liabilities |
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Accrued expenses – related party |
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Current lease liability |
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Convertible notes-current |
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Total current liabilities |
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Convertible notes-noncurrent |
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Total liabilities |
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(Note 10) |
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Shareholders’ deficit: |
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Ordinary shares, £ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ deficit |
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( |
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( |
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Total liabilities and shareholders’ deficit |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
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For the Three Months Ended September 30, |
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(in thousands, except share and per share data) |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit (loss) |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Foreign currency gain, net |
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Fair value adjustment to VericiDx investment |
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Fair value adjustment to convertible notes |
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( |
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Other (expense) income, net |
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( |
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Net loss before income taxes |
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( |
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( |
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Income tax expense |
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( |
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Net loss |
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( |
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Net loss per ordinary share—basic |
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$ |
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$ |
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Net loss per ordinary share—diluted |
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$ |
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$ |
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Weighted average ordinary shares—basic |
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Weighted average ordinary shares—diluted |
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Other comprehensive income (loss): |
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Changes in the fair value of the convertible notes |
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( |
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Foreign exchange translation adjustment |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
2
RENALYTIX PLC
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Ordinary shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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(in thousands, except share and per data) |
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Shares |
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Amount |
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capital |
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loss |
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deficit |
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deficit |
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Balance at July 1, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Shares issued for repayment of convertible bond |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Changes in the fair value of the convertible notes at fair value through other comprehensive income (loss) |
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— |
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— |
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— |
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( |
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— |
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( |
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Currency translation adjustment |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Ordinary shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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(in thousands, except share and per share data) |
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Shares |
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Amount |
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capital |
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loss |
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deficit |
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equity (deficit) |
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Balance at July 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Shares issued for repayment of convertible bond |
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— |
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— |
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Vesting of RSUs |
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— |
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— |
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— |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Currency translation adjustment |
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— |
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— |
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— |
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— |
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Changes in the fair value of the convertible notes at fair value through other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
RENALYTIX PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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For the Three Months Ended September 30, |
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(in thousands) |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Fair value adjustment to VericiDx investment |
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Realized loss on sale of ordinary shares in VericiDx |
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Realized foreign exchange gain |
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Fair value adjustment to convertible debt, net interest paid |
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Non cash lease expense |
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Provision for credit losses |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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Accounts payable – related party |
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Accrued expenses and other current liabilities |
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( |
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( |
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Accrued expenses – related party |
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( |
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Net cash used in operating activities |
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( |
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Cash flows from investing activities: |
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Sale of ordinary shares in VericiDx investment |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Payment of convertible notes principal |
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Payment of offering costs |
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Net cash used by financing activities |
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( |
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Effect of exchange rate changes on cash |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental noncash investing and financing activities: |
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Noncash lease liabilities arising from obtaining right-of-use assets |
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$ |
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$ |
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Cash paid for interest on convertible debt |
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$ |
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$ |
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Issuance of shares for debt repayment |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
4
RENALYTIX PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Business and risks
Renalytix plc and its wholly-owned subsidiaries, the “Company” or "Renalytix," is an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and significantly lower healthcare costs. KidneyIntelX, the Company’s first-in-class diagnostic technology platform, employs a proprietary artificial intelligence-enabled algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from EHR systems, to generate a unique patient risk score. kidneyintelX.dkd is the Company’s FDA approved, Medicare reimbursed prognostic testing service currently implemented with large physician group practices, health care systems in the United States.
The Company is also collaborating with pharmaceutical companies which generates ‘Pharmaceutical Services Revenue’ using KidneyIntelX platform technology for understanding patient response to novel and widely used drug therapies including SLGT2 inhibitors and GLP1s
Since inception in March 2018, the Company has focused primarily on organizing and staffing the Company, raising capital, developing the KidneyIntelX technology platform, conducting clinical validation studies, clinical utility studies, health economics studies, establishing and protecting its intellectual property portfolio and commercial laboratory operations, pursuing state and federal regulatory approvals and securing insurance pricing, coverage and payment for its prognostic services. The Company has funded its operations primarily through equity and debt financings. In 2024, following FDA approval, Medicare insurance coverage and guidelines inclusion for kidneyintelX.dkd, the Company largely completed reorganization from development activities to commercial sales activities. This reorganization has resulted in a substantially lower cost of operations and a growing doctor prescription rate of kidneyintelX.dkd.
The Company is subject to risks and uncertainties common to early-stage companies in the diagnostics industry, including, but not limited to, ability to secure additional capital to fund operations, compliance with governmental regulations, development by competitors of new technological innovations, dependence on key personnel and protection of proprietary technology. To achieve widespread usage, kidneyintelX.dkd will require significant investment in sales and marketing. Additional diagnostic services currently under development, if they are pursued at a future date by the Company, will likely require extensive clinical testing and validation prior to regulatory approval and commercialization, and will require various levels of investment capital.
2. Liquidity and Going Concern
The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $
Post-period, the Company has closed an equity financing round of approximately $
The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next 24 months to improve the Company’s liquidity and profitability, which includes, without limitation:
As a result of the Company's losses and its projected cash needs, as defined in the accounting literature, substantial doubt exists about the Company’s ability to continue as a going concern. While subsequent to September 30, 2024, the Company has successfully raised approximately $
5
management has concluded that there is a going concern uncertainty. The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.
3. Basis of presentation and summary of significant accounting policies
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes in the Company's Annual Report on Form 10-K for the year ended June 30, 2024. The information as of June 30, 2024 in the Company's condensed consolidated balance sheet included herein was derived from the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K.
In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Results of operations for the three months ended September 30, 2024 are not necessarily indicative of the results expected for the full fiscal year ending June 30, 2025.
Principles of consolidation
The consolidated financial statements include the accounts of Renalytix plc and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. The Company accounts for investments in which it has significant influence, but not a controlling financial interest, using the equity method of accounting.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.
Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant areas that require management’s estimate include the assumptions used in determining the fair value of share-based awards, determining the fair value of the bonds, recording the prepaid/accrual and associated expense for research and development activities performed for the Company by third parties and determining useful lives of property and equipment and capitalized software.
Segment information
The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is to make significant improvements in kidney disease diagnosis and prognosis, clinical care, patient stratification for drug clinical trials, and drug target discovery.
Foreign currency
The Company’s consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. The functional currency of Renalytix plc and Renalytix AI Limited is GB Pounds. The functional currency of Renalytix AI, Inc. is the U.S. dollar. Assets and liabilities of Renalytix plc and Renalytix AI Limited are translated at the rate of exchange at period-end, while the consolidated statements of operations and comprehensive loss are translated at the weighted average exchange rates in effect during the reporting period. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive loss. Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency are included in income in the period in which the change occurs and reported in the consolidated statements of operations and comprehensive loss.
Concentrations of credit risk and major customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable balances. Periodically, the Company maintains deposits in accredited financial institutions in excess of
6
federally insured limits. The Company deposits its cash and cash equivalents in financial institutions that it believes have high credit quality and are not exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships and has not experienced any losses on such accounts.
The Company’s accounts receivable related to testing services are derived from revenue earned from customers located in the U.S. For the three months ended September 30, 2024, approximately
Fair value of financial instruments
At September 30, 2024 and June 30, 2024, the Company’s financial instruments included accounts receivable and accounts payable. The carrying amounts of these assets and liabilities approximates fair value due to their short-term nature. The convertible notes are recorded at their estimated fair value.
Fair value option
Under the Fair Value Option Subsections of ASC subtopic 825-10, Financial Instruments – Overall, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with changes in fair value reported in earnings (see Note 5). The Company has elected to measure and record the convertible notes at their estimated fair value.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. As of September 30, 2024 and June 30, 2024, the Company had a cash and cash equivalents of $
Accounts receivable
Accounts receivable are recorded at the invoice amount and are non-interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reserves specific receivables if collectability is no longer reasonably assured. Estimates for credit losses are determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances. The Company reserved for $
Property and equipment
Investments
VericiDx plc
The Company accounts for its ownership of VericiDx securities at fair value in accordance with ASC 321, Investments-Equity Securities, with changes in fair value recorded in earnings as the fair value of VericiDx's ordinary shares is readily determinable via the London Stock Exchange. Based on the closing stock price of VericiDx, the fair value of the investment in VericiDx was $
7
Impairment assessment
The Company evaluates its investments that are in unrealized loss positions, if any, and equity method investments for other-than-temporary impairment on a quarterly basis (see Note 5). Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers or investees. Factors considered by the Company include (i) the length of time and the extent to which an investment’s fair value has been below its cost; (ii) the financial condition, credit worthiness, and near-term prospects of the issuer; (iii) the length of time to maturity; (iv) future economic conditions and market forecasts; (v) the Company’s intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value; and (vii) whether events or changes in circumstances indicate that the investment’s carrying amount might not be recoverable.
Software development costs
The Company follows the provisions of ASC 985, Software, which requires software development costs for software to marketed externally to be expensed as incurred until the establishment of technological feasibility, at which time those costs are capitalized until the software is available for general release and amortized over its estimated useful life of
Revenue recognition
Pursuant to ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. Certain contracts have options for the customer to acquire additional services. The Company evaluates these options to determine if a material right exists. If, after that evaluation, it determines a material right does exist, it assigns value to the material right based upon the renewal option approach. The Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. The Company uses the present right to payment principle and customer acceptance as indicators to determine the transfer of control to the customer occurs at a point in time. Sales tax and other similar taxes are excluded from revenues.
Cost of revenue
Cost of revenue consists of costs directly attributable to the services rendered, including labor, rent, lab consumables, depreciation, amortization and sample collection costs directly related to revenue generating activities.
Research and development expenses
Research and development costs consist primarily of internal and external labor costs incurred in connection with the development of KidneyIntelX technology as well as expenses related to studies and clinical trials to further the clinical value, performance and utility of kidneyintelX.dkd. Research and development costs are expensed as incurred.
Share-based compensation
The Company measures equity classified share-based awards granted to employees and nonemployees based on the estimated fair value on the date of grant and recognizes compensation expense of those awards over the requisite service period, which is the vesting period of the respective award. The Company accounts for forfeitures as they occur. For share-based awards with service-based vesting conditions, the Company recognizes compensation expense on a straight-line basis over the service period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield. The Company was a
8
privately-held organization prior to November 2018 and has been a publicly-traded company for a limited period of time and therefore lacks company-specific historical and implied volatility information for its shares. Accordingly, the Company estimates its expected share price volatility based on the historical volatility of publicly-traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is none based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future.
The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Income taxes
Income taxes are accounted for under the asset and liability method as required by FASB ASC Topic 740, Income Taxes ("ASC 740"). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A reduction in the carrying value of the deferred tax assets is required when it is not more likely than not that such deferred tax assets are realizable.
FASB ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes (ASC "740-10"), defines the criterion an individual tax position must meet for any part of the benefit of the tax position to be recognized in financial statements prepared in conformity with U.S. GAAP. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not such tax position will be sustained on examination by the taxing authorities, based solely on the technical merits of the respective tax position. The tax benefits recognized in the financial statements from such a tax position should be measured based on the largest benefit having a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. In accordance with disclosure requirements of ASC 740-10, the Company’s policy on income statement classification of interest and penalties related to income tax obligations is to include such items as part of income tax expense.
The Company recorded an immaterial provision for income taxes for the three months ended September 30, 2024. The Company did not record a provision for income taxes for the three months ended September 30, 2023, as the Company generated losses for such periods. The Company periodically evaluates the realizability of its deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed both positive and negative evidence and determined that there is a continued need for a full valuation allowance on its deferred tax assets as of September 30, 2024. Should the Company determine that it would be able to realize its remaining deferred tax assets in the foreseeable future, an adjustment to its remaining deferred tax assets would cause a material increase to income in the period such determination is made. At September 30, 2024, the Company had
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. For the periods presented, changes in shareholders’ equity include foreign currency translation as well as changes in fair value of the convertible note due to changes in instrument-specific credit risk. The change in instrument-specific credit risk was calculated as the change in the risk yield from the convertible debt issuance date to the valuation date. The instrument-specific credit risk at issuance date was calibrated such that the fair value of the convertible bond was equal to the issue price as of the issuance date. The risk yield was adjusted to reflect the change in credit spreads between the issuance date and the valuation date.
Net loss per ordinary share
Basic net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during each period. Diluted net loss per ordinary share includes the effect, if any, from the potential exercise or conversion of securities, such as options and convertible debt which would result in the issuance of incremental ordinary shares.
9
The dilutive effect of convertible securities is calculated using the if-converted method. Under the if-converted method, interest charges applicable to the convertible debt as well as nondiscretionary adjustments which include any expenses or charges that are determined based on the income (loss) for the period are added back to net income. The convertible debt is assumed to have been converted at the beginning of the period (or at time of issuance, if later). For the three months ended September 30, 2024, under the if-converted method, the add back of nondiscretionary adjustments and inclusion of potentially converted shares would be anti-dilutive.
Emerging growth company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). Under the JOBS Act, companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected to avail itself of this exemption and, therefore, while the Company is an emerging growth company it will not be subject to new or revised accounting standards at the same time that they become applicable to other public emerging growth companies that have not elected to avail themselves of this exemption.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the previous guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. The Company implemented ASU 2016-13 in the fiscal year beginning July 1, 2023 and evaluated the impact of ASU 2016-13 and it did not have a material impact on the consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 eliminates two of the three models in ASC 470-20 that require issuers to separately account for embedded conversion features and eliminates some of the requirements for equity classification in ASC 815-40-25 for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and generally requires them to include the effect of potential share settlement for instruments that may be settled in cash or shares. It is effective for annual periods beginning after December 15, 2023, and interim periods therein. The Company evaluated the effect of ASU 2020-06 and it is not expected to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The guidance is effective for the fiscal year ending June 30, 2025, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This guidance is effective for annual periods beginning after December 15, 2024, and the adoption of this standard is not anticipated to have a significant impact on the Company’s consolidated financial statements other than adding new disclosures, which the Company is currently evaluating.
4. Revenue
Testing services revenue
Each individual test is a performance obligation that is satisfied at a point in time upon completion of the testing process (when results are reported) which is when control passes to the customer and revenue is recognized. During the three months ended September 30, 2024 and 2023, the Company recognized $
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Pharmaceutical services revenue
Pharmaceutical services revenue is generated from the provision of analytical services to customers. Contracts with customers generally include an initial upfront payment and additional payments upon achieving performance milestones. The Company uses the present right to payment principle and customer acceptance as indicators to determine the transfer of control to the customer which may occur at a point in time or over time depending on the individual contract terms. Sales tax and other similar taxes are excluded from revenues.
During the three months ended September 30, 2024 and 2023, there was
5. Fair value measurements and the fair value option
Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
This hierarchy requires the use of observable market data when available and to minimize the use of unobservable inputs when determining fair value.
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Fair value measurement at |
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reporting date using |
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(in thousands) |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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September 30, 2024 |
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Assets: |
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Equity securities |
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$ |
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$ |
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$ |
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Liabilities: |
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Convertible notes |
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$ |
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$ |
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$ |
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June 30, 2024 |
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Assets: |
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Equity securities |
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$ |
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$ |
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$ |
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Liabilities: |
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Convertible notes |
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$ |
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$ |
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$ |
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The Company accounts for its ownership of VericiDx securities at fair value in accordance with ASC 321, Investments-Equity Securities, with changes in fair value recorded in earnings as the fair value of VericiDx's ordinary shares is readily determinable via the London Stock Exchange. As of September 30, 2024, the Company owns
As further described in Note 8, in April 2022 the Company issued convertible promissory notes (the “Notes”) to an investor. The fair value option, as prescribed by ASC 815, Derivatives and Hedging, was elected and applied in connection with the preparation of these consolidated financial statements. The fair value of the Notes is determined using a scenario-based analysis that estimates the fair value based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders.
The Company adjusts the carrying value of the Notes to their estimated fair value at each reporting date, with qualifying increases or decreases in the fair value recorded as change in fair value of convertible promissory notes in the statements of operations and comprehensive loss.
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(in thousands) |
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September 30, 2024 |
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Balance at July 1, 2024 |
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$ |
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Change due to payment of principal and interest |
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( |
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Fair value adjustments |
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Change in credit risk |
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FX Impact |
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Balance at September 30, 2024 |
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$ |
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Non-financial assets and liabilities
The Company’s non-financial assets, which primarily consist of property and equipment and equity method investments, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value in its consolidated balance sheets. However, on a periodic basis or whenever events or changes in circumstances indicate that they may not be fully recoverable, the respective carrying value of non-financial assets are assessed for impairment and, if ultimately considered impaired, are adjusted and written down to their fair value, as estimated based on consideration of external market participant assumptions.
6. Property and equipment, net and intangibles
Property and equipment consist of the following:
(in thousands) |
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September 30, 2024 |
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June 30, 2024 |
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Lab equipment |
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$ |
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$ |
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Office equipment |
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Office furniture |
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Leasehold improvements |
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Total |
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Less accumulated depreciation |
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( |
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( |
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$ |
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$ |
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Depreciation expense was $
Software, which is included in other assets on the condensed consolidated balance sheets, consists of:
(in thousands) |
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September 30, 2024 |
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June 30, 2024 |
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Software |
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$ |
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$ |
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Less accumulated amortization |
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( |
) |
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( |
) |
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$ |
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$ |
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Amortization expense was $
As of September 30, 2024, the expected amortization expense for the next five years and thereafter is as follows:
(in thousands) |
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2025 |
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$ |
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2026 |
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2027 |
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2028 |
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2029 |
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Thereafter |
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$ |
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7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
(in thousands) |
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September 30, 2024 |
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June 30, 2024 |
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Consulting and professional fees |
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$ |
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$ |
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Research and development |
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Payroll and related benefits |
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License and royalty expense |
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Other |
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$ |
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$ |
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8. Convertible Notes
In April 2022, the Company issued amortizing senior convertible bonds with a principal amount of $
The Company performed an analysis and determined that the financial impact was immaterial as the amended and restated agreement was not substantially different than the previous agreement.
The Convertible Bond Investor is also permitted to defer up to two amortization payments to a subsequent amortization date. The Company retains the option to repay any deferred amortization in cash at
13
2024, the Company made an amortization payment of $
On issuance, the Company elected to account for the Bonds at fair value in accordance with ASC 815, Derivatives and Hedging, with qualifying changes in fair value being recognized through the statements of operations and comprehensive loss until the Bonds are settled. Changes in fair value related to instrument-specific credit risk are recognized through comprehensive loss until the Bonds are settled. The fair value of the bonds is determined using a scenario-based analysis that estimates the fair value based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders. Significant assumptions used in the fair value analysis include the volatility rate, risk-free rate, dividend yield and risky yield. The fair value of the Bonds was determined to be $
9. Leases
The Company leases certain office space and laboratory space. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. The Company does not recognize right-of-use assets or lease liabilities for leases determined to have a term of
Variable executory costs, as it relates to net leases, are excluded from the calculation of the lease liability. Variable executory costs include costs relating to utilities, repairs, maintenance, insurance, common area expenses, and taxes paid for the leased asset during its economic life.
Upon adoption of ASC 842, the Company elected the package of practical expedients and the hindsight practical expedient but did not elect the easement practical expedient which is not applicable to the Company as the Company does not have any ground leases. In accordance with the package of practical expedients, the Company has not reassessed any of their existing or expired contracts or any other agreements that were previously concluded to not contain a lease for the following practical expedient guidance: (1) whether the arrangement is or contains a lease, (2) lease classification and (3) whether previously capitalized costs continue to qualify as initial direct costs.
The Company leased lab space in Salt Lake City, UT, under a
The Company leased lab space in New York City, NY, under an initial
The Company leased office space in New York City, NY, under an initial month-to-month term, the term of which commenced in June 2018. The lease did not have termination or formal renewal options however the Company can renew their office space if they are still needed and are still available at the end of the term. The Company has classified this lease as a short-term lease as the Company concluded that the noncancelable terms of this lease was less than one year at the commencement and none of the Company's renewals or amendments were for additional noncancelable terms greater than one year.
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities during the adoption of ASC 842:
As the Company's leases do not provide an implicit rate, it concluded that a
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The following table shows the lease balance sheet classification of leases for the three months ended September 30, 2024:
(in thousands) |
September 30, 2024 |
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Assets |
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Operating lease right-of-use assets, net of accumulated amortization |
$ |
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Liabilities |
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Current |
$ |
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Operating lease liabilities, current |
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Non-current |
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Operating lease liabilities, non-current |
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Total lease liabilities |
$ |
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The following table shows the lease costs for the three months ended September 30, 2024:
Lease costs (in thousands) |
Statement of operations classification |
September 30, 2024 |
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Operating lease costs |
Operating expenses: research and development |
$ |
( |
) |
Short-term lease costs |
Operating expenses: research and development |
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Short-term lease costs |
Operating expenses: general and administrative |
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Short-term lease costs |
Cost of goods sold |
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Total lease costs |
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$ |
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Other information |
September 30, 2024 |
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Cash paid for amounts included in the measurement of lease liabilities (in thousands) |
$ |
( |
) |
Remaining lease term - operating leases (in years) |
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Discount rate - operating leases |
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% |
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The future minimum payments for noncancelable leases with terms in excess of one year as of September 30, 2024 are payable as follows:
(in thousands) |
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2025 |
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$ |
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2026 |
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2027 |
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Total minimum lease payments |
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Less amounts representing interest |
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( |
) |
Present value of lease liabilities |
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$ |
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10. Commitments and contingencies
Leases
Lease payments under operating leases as of September 30, 2024 and information about the Company’s lease arrangements are disclosed in Note 9, "Leases".
Employment agreements
The Company has entered into employment agreements with certain key executives providing for compensation and severance in certain circumstances, as set forth in the agreements.
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Retirement plans
The Company maintains a defined contribution 401(k) retirement plan which covers all U.S. employees. Employees are eligible after three months of service. Under the 401(k) plan, participating employees may make contributions in an amount up to the limit set by the Internal Revenue Service on an annual basis. The Company has a safe harbor plan and makes contributions to employee accounts of
Legal proceedings
11. License and services agreements
Mount Sinai license and sponsored research agreements
On May 30, 2018, the Company entered into an exclusive license agreement (the “ISMMS License Agreement”) and on March 7, 2019, a sponsored research agreement (the “ISMMS SRA”) with Mount Sinai. Under the terms of the ISMMS License Agreement, ISMMS granted the Company (i) an exclusive, sublicensable license to use certain patent rights covering specific inventions concerning the utilization of biomarkers guided artificial intelligence techniques for detecting kidney functional decline (the “ISMMS Technology”), (ii) a non-exclusive license under unregistered licensed copyrights and licensed know-how and (iii) an exclusive option to obtain licensed technology conceived after May 30, 2018. The Company is obligated to pay Mount Sinai $
As part of the ISMMS SRA, the Company has agreed to fund several research projects to further develop the ISMMS Technology. The Company incurred $
Mount Sinai Clinical Trial agreement
In July 2021, the Company entered into a Clinical Trial Agreement (the "CTA") with ISMMS. Under the CTA, ISMMS will undertake a sponsored clinical trial entitled, “A prospective decision impact trial of KidneyIntelX in patients with Type 2 diabetes and existing chronic kidney disease”. The clinical trial is to be conducted at ISMMS with Renalytix agreeing to pay ISMMS in accordance with the agreed upon budget. The clinical trial is expected to last up to four years with a total estimated budget of $
Joslin Diabetes Center agreement
In October 2018, the Company purchased a worldwide exclusive license agreement (the “Joslin Agreement”) with the Joslin Diabetes Center, Inc. (“Joslin”) that was previously entered into with EKF Diagnostics Holding plc (“EKF”), a related party, in July 2017. The license agreement provides the Company with the right to develop and commercialize licensed products covering a novel methodology of diagnosing and predicting kidney disease using certain biomarkers (the “Joslin Diabetes Technology”).
Under the terms of the Joslin Agreement, the Company is obligated to pay Joslin aggregate commercial milestone payments of $
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The Joslin Agreement initially expires on